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Italy GDP Q1 2018

Italy: Economy keeps pace in Q1

In the first quarter, GDP expanded 0.3% over the previous quarter in seasonally- and working-day adjusted terms, according to an advance estimate released by the National Statistics Office (ISTAT) on 2 May. The result marked the 15th consecutive quarter of growth. It was unchanged from Q4’s reading and matched analysts’ expectations. According to the accompanying press release, the expansion in Q1 was driven by growth in the service and agricultural sectors; growth in the industrial sector, however, remained muted. In annual terms, GDP grew 1.4% in Q1, down slightly from Q4’s 1.6% expansion.

Business confidence, especially in the services sector, was robust throughout the quarter, likely benefiting from further improvements in the troubled banking sector. On the other hand, the industrial sector had a particularly weak start to the year, in line with what was seen in the Eurozone more broadly, as month-on-month industrial production contracted in both January and February. On the demand side, preliminary data indicated that while domestic demand including stock variation contributed to economic growth, external demand dragged on it. More detailed national accounts data will be released on 1 June.

Despite the consolidation of the recovery, long-standing problems continue to weigh on Italy’s economy. These include the second-highest public debt-to-GDP ratio in the European Union, sluggish productivity growth, a slow judicial system, high taxes and cumbersome bureaucracy. A recovering, but still weak, banking system, the legacy of the last global financial and economic crisis, adds to these problems, which are further compounded by the political deadlock that followed the elections in March. The economy is nevertheless expected to maintain a stable, albeit subdued, pace of expansion in 2018. Low inflation and further improvements in the labor market should underpin household spending, while favorable financing conditions and some acceleration in credit growth are expected to spur fixed investment.

Italy GDP Forecast

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